Maximus, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 fiscal year 20 Maximus earnings conference call. At this time, all participants are in a listen-only mode. For the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Lisa Miles, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Good morning, and thank you for joining us today. My name is Bruce Caswell, President and Chief Executive Officer, and Rick Nadeau, Chief Financial Officer. I would like to highlight that a presentation is available on the Investor Relations page of Maximus.com if you would like to follow along with today's prepared remarks. I would like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of the risks we face, including those discussed in Exhibit 99.1 of our SEC filings. We encourage you to review the information contained in our earnings release today and our most recent forms 10Q and 10K filed with the SEC. The company does not assume any obligation to revise or update these forward-looking statements to reflect Subsequent events or circumstances except as required by law. Today's presentation may contain non-GAAP financial information. Management uses this information in its internal analysis of results, and we believe this information may be informative to investors in gauging the quality of our financial performance, identifying trends in our results, and providing meaningful period-to-period comparisons. For reconciliation of the non-GAAP measures presented in this document, please see the company's most recent quarterly earnings press release. And with that, I'll hand the call over to Rick.

Thank you, Lisa. First, let me say that since the COVID-19 pandemic, Bruce and I have never been prouder to lead an organization with such heart, dedication, ingenuity, and collaboration at all. Underscoring the critical nature of our work, Many of our core program operations in the United States and abroad have seemed essential to ensure that vital government programs continue to operate and that citizens continue to receive critical assistance at a time when the need for health care and safety net programs is rising. The entire Maximus team has met this challenge and has worked tirelessly to ensure that we continue to support citizens during this unprecedented Our employees are accomplishing extraordinary things during the COVID-19 pandemic. This we'll discuss in greater detail, but I would like to highlight some important accomplishments. First and foremost, we implemented robust pay-leave options to ensure the safety and well-being of those employees who experience COVID-19-related absence, mandated social distancing across all operations, significantly enhanced our sanitation measures, Most importantly, we continue to transition more employees to work. Outside the United States, we have partnered with government in the United Kingdom to redeploy some of our healthcare professionals directly into the National Health Service, as well as case management and administrative staff for work and pensions by Vital Frontline. Our priority has been the health and safety of our employees and ensuring that we can continue to support are government clients. What model that takes government services. No one can predict with certainty the scale or length of disruption of the COVID-19 pandemic or how deep and severe the economic crisis is. We did our normal bottoms-up quarterly review in April in stating guidance for fiscal. I think it is important to give our investors Please note, however, that our actual results could vary from the guidance due to numerous factors, including a worsening of the pandemic, erosion due to budgetary pressures, steps taken by federal, provincial, state, or local governments, or limit office hours, later missed payments by customers, or supply chain disruptions, or safety equipment. Changes we have used are wider than typical. The increased risk and variability we face. It is possible that actual results could vary materially from our current expectations. We anticipate that fiscal 2020 revenue will range between $3.15 to $3.25 billion. Eluded earnings per share to range between $2.95 and Cash from operations is now expected to range between $250 and $300 million. Cash flow between $200 and $250 million. While we feel comfortable with this cash flow range, I will point out that delays in collections of receivables can cause significant variation. The remainder of the fiscal year, we anticipate continued disruption across all segments, offsetting favorability from new work. is expected to be most pronounced in our outside the U.S. segment. Some positive impacts in the two U.S. segments that in some cases we have won, other cases are perceived. Bruce will provide more detail in his second quarter results. COVID-19 impacts, as well as the challenges and opportunities that lie ahead for the second quarter of fiscal 2020. totaled $818.1 million, which did the full ramp up of the census contract U.S. Federal Services. Total company operating margin 4.6%, diluted earnings per share $0.33, two substantial impacts. First, we had a pandemic-related write-down of approximately $24 million, or $0.28 per share, related to the decline in estimates . . . . . . Thank you for joining us today. . . . . . . . . . . . . . . . . . . . . . . . . . . The current assumptions indicate economics for this segment will continue to experience minor disruption, a margin between 17 and 18%. Going ahead, not only have the Maximus operational teams been able to take on new work associated with a variety of COVID-related work. Further, the business development teams have launched and Keith's Address Needs Resource Caps. Revenue for the second quarter of fiscal 2020, West Federal Services, $193.4 million. All growth in this segment was organic, including the Citizen Engagement Center's growth was 6.7 by new work and growth. Operating margin for this segment in the The quarter of fiscal 2020 was 7.7%. Favorable impacts of the COVID-19 pandemic on performance-based work and ongoing investments in business. Priority of revenue in this segment is generated by cost-plus contracts. It means that we can recover certain COVID-related costs, such as increased facility cleaning on these contracts. This contract is now approaching its peak level of operations. . . . . . As a result, our contract has expanded to support the new deadline. We now estimate that we will deliver between $430 and $450 million. An increase from our previously expected revenue of $360 million. The economics of this segment are largely intact through fiscal year. The U.S. Federal Services segment is estimated to Deliver a full-year operating margin between $8 and $9 million. A slightly greater mix of cost plus well as our continued investment. The COVID-19 pandemic has had the most pronounced effect. It was $104 million. The segment had a loss of As a reminder, this segment has several significant performances. Estimates are tied directly to the job seeker outcome. Every goal of placing individuals in a firm sustained employment is economic. The revenue is recognized based on our estimate of the number of individuals we anticipate reaching. As a result of the pandemic, we reduced our estimates of those job seekers who are likely to achieve employment outcomes. The funding rules require us to record our best estimate of the... Therefore, the impact of those... This resulted in a pandemic-related write-down of approximately... ...or $0.28 per share, related to a decline in... Although we are continuing to serve as participants in programs where we can... Many participants have required them to self-isolate and the pool of available employment opportunities is currently suspended. The remainder of fiscal 2020 will experience impacts from the COVID-19 pandemic related to our HOSS contract. While our face-to-face assessments work is currently suspended, we are working to introduce telephone assessments and continuing to process They are proud to partner with government to be a part of the solution to this worldwide health crisis. In the past few weeks, many of our health care professionals volunteered to be seconded in an agency capacity for those employees. We receive reimbursement of most of our costs, but we will not earn revenue. We expect the fourth quarter for this segment to come in a little below break-even. Our objective is for progressive improvement in the third quarter with an aim to cut the second quarter loss in half. Looking ahead, we are starting to see new opportunities develop. That's the significant impact of the global labor markets. In 2021 and beyond, we anticipate we will see an expanded need for our services. Our governments expand. with widespread unemployment. Today, we are in the process of transitioning some of our outcomes in the services contract. Trust recovery contracts provide considerably more stability and these contract changes will be work with the department model with raising unemployment. According to the balance sheet, There's the second quarter with cash and cash equivalents of approximately $100 million. Cash provided by operations was $22 million. Free cash flow was $13.4 million. Cash provided by operations was tempered by a combination of lower income, higher proportion of income tax quarter, and accounts receivable grew in the first half of the fiscal year due to increased revenue. Those were 72 days. We're continuing to monitor collections closely. I'd like to point out that one day of DSO is roughly a billion dollars. We entered the COVID-19 pandemic with a strong balance sheet and a resolve to manage liquidity. We faced uncertainties, including state budgetary pressures, from our customers. The empirical experience during economic downturns and our designation as an essential service provider in the United States puts us in a favorable position in working with our customers. However, we recognize that our customers are experiencing significant disruption to their tax receipts. We will continue to manage the company in a conservative manner. Going forward, the management team and the board of directors intend to take a prudent and constructive approach to cash deployment over the coming months. Currently, we do not anticipate a disruption to our future quarterly cash dividends. The quarterly 10b-5-1 share purchase plan, declared naturally in March, half embedded in the program, was met. We have paused share purchases in the activity, but we see an easing of the uncertainties from the COVID-19 pandemic. We continue to work on smaller, tuck-in transactions that will support future organic growth. We are optimistic that the maximums will emerge from this disruption as a strong economy. We have been able to demonstrate that we can navigate, innovate, and showcase our operational effectiveness, challenging events, and continuing to support the most vulnerable populations in our workforces. Thank you, Rick, and good morning, everyone. Thank you, Rick. I could not be more proud of our employees' efforts during these unprecedented times. COVID-19 is a global pandemic that impacts all of us.